Flat-Fee Tax Preparation for Pennsylvania Residents

Pennsylvania's personal income tax is a flat 3.07%, but PA does NOT allow most federal itemized deductions — PA uses its own income classes and does not permit mortgage interest, charitable contributions, or medical expenses as deductions

PA Schedule UE (Unreimbursed Employee Business Expenses) still allows employees to deduct legitimate unreimbursed work expenses on their PA return, even though this deduction was eliminated federally under the TCJA in 2018

Philadelphia imposes a City Wage Tax on residents (3.75%) and non-residents working in Philadelphia (3.44%) — and a Business Income and Receipts Tax (BIRT) at a combined rate of roughly 6.15% on net income plus gross receipts

Pennsylvania does not tax retirement income — Social Security benefits, pension income, and distributions from IRAs and 401(k)s are fully exempt from PA income tax for taxpayers over age 59½

The PA Corporate Net Income Tax (CNIT) is being reduced to 4.99% by 2031 (currently 8.49% in 2024), making entity structure planning an evolving consideration for PA business owners

PA real estate transfer tax is 2% state plus local transfer tax (1% in most municipalities, 4.278% in Philadelphia) — a major transactional cost for PA real estate investors

PA treats net income from rental properties and business activities under separate income classes from wages — losses from one class generally cannot offset income from another class, which differs significantly from federal treatment

PA requires Local Earned Income Tax (EIT) filing in the taxpayer's municipality of residence — rates vary by municipality, and many PA residents owe local EIT to their home municipality separately from PA state tax

Pennsylvania Real Estate Tax

Pennsylvania's real estate market features significant investor activity in Philadelphia, Pittsburgh, and surrounding suburban markets. The PA real estate transfer tax is among the highest in the nation — combined state and local rates can reach 4%+ in Philadelphia — making proper deal structuring essential. PA does not allow capital losses to offset ordinary income within the same year, and PA rental losses cannot offset wage income, creating different planning considerations than federal.

Pennsylvania Business Tax

Pennsylvania businesses face a complex multilayer tax structure: the flat 3.07% personal income tax on pass-through income, the declining CNIT for corporations, and potential Philadelphia BIRT for city-based businesses. The PA income class system — which prohibits netting losses between income types — means that a business loss in Pennsylvania does not automatically reduce a PA resident's overall tax liability the way it would federally.

I work in Philadelphia but live in the suburbs — do I owe Philadelphia wage tax?

Yes. Philadelphia imposes a non-resident wage tax of 3.44% on all wages earned within Philadelphia city limits, regardless of where you live. Your employer should be withholding this if they are based in Philadelphia. However, if you live in a PA municipality that also has a local EIT, you typically get a credit on your local return for the Philadelphia wage tax paid, preventing full double taxation. Starting in 2020 and affirmed by a PA Supreme Court decision, wages earned while working from home outside Philadelphia are not subject to the Philly wage tax.

Does Pennsylvania tax my Social Security benefits or pension income?

No. Pennsylvania is one of the most retirement-friendly states in the country for taxes. PA does not tax Social Security benefits, pension income (including government, private, and military pensions), or distributions from IRAs and 401(k)s — provided you are age 59½ or older at the time of the distribution. Distributions before age 59½ are taxable in PA. This makes PA an attractive state for retirees compared to states that fully tax retirement income.

Can I deduct my rental property losses on my Pennsylvania return?

Generally no. Pennsylvania uses an income class system that does not allow losses from one income class (such as rent or royalties) to offset income from another class (such as wages). If your PA rental property generates a loss, that loss is suspended and can only be used against future PA rental income. This differs significantly from federal treatment, where passive rental losses up to $25,000 per year may offset ordinary income for taxpayers earning under $100,000.

What is Schedule UE and who should use it?

PA Schedule UE allows Pennsylvania employees to deduct unreimbursed business expenses on their state return — a deduction that was eliminated at the federal level by the Tax Cuts and Jobs Act in 2018. Qualifying expenses include tools, uniforms, professional licenses, work-related education, and vehicle mileage for work travel not reimbursed by your employer. The deduction can be significant for tradespeople, nurses, teachers, and others who incur regular out-of-pocket work expenses.